(2) A Puzzle: Exports = Cost, Imports = Benefit ?
Continued from here.
I received this reply to my comment.
Dear Lector (at 2018/05/25 at 5:31 am)
Thanks for the kind comments.
Joan Robinson was talking about a world economy under the Bretton
Woods agreement (fixed exchange rates). The constraints that system
imposed on governments and nations no longer apply – where nations
adopted fiat currencies with floating exchange rates.
A world of difference.
best wishes
My response is here:
Bill,
Thank you for your reply.
I fail to see how a regime of floating exchange rates invalidates what these gentlemen have to say about the benefits of engaging in exporting:
Between whatever places foreign trade is carried on, they all of them derive two distinct benefits from it. It carries the surplus part of the produce of their land and labour for which there is no demand among them, and brings back in return something else for which there is a demand. It gives value to their superfluities, by exchanging them for something else, which may satisfy part of their wants and increase their enjoyments. By means of it, the narrowness of the home market does not hinder the division of labour in any particular branch of art or manufacture from being carried to the highest perfection. By opening a more extensive market for whatever part of the produce of their labour may exceed the home consumption, it encourages them to improve its productive powers and to augment its annual produce to the utmost, and thereby to increase the real revenue of wealth and society.
Adam Smith, The Wealth of Nations, Chap I, Commercial System, p. 181
While Adam Smith emphasises trade and thus exporting as "a vent for surplus production and as a means of widening the market thereby improving the division of labour and the level of productivity" (Thirlwall), the latter author continues to write in his "Growth and Development" (1990, p. 430),
... export growth plays a major part in the overall growth process by stimulating demand and encouraging saving and investment, including foreign direct investment from abroad, and by increasing the supply potential of the economy by raising the capacity to import.
And he adds on p. 431 with respect to the most successful among the developing and (not only recently) industrialised countries
... there is no way in which these countries could have grown as rapidly as they did without the rapid growth of exports. Apart from all the externalities associated with trade and encouragement of domestic and foreign investment, they simply would not have had the foreign exchange to pay for all the imports.
If this is true, and I have no doubt it is, how can one claim that exporting is an impoverishing activity and nothing but an impoverishing activity (Neil Wilson above), a cost and nothing but a cost, not eligible to be ascribed any benefit(s) ?
Are you saying all of these benefits do not exist? Alternatively, are you saying that if these benefits exist their effects are fully annihilated, made to disappear, leaving no traces of their positive side by the fact that an exporter is "giving up some real things" of domestic origin? Are you arguing in favour of total autarky? No, you are not, because you posit that imports are a benefit (and nothing but a benefit). But as you acknowledge yourself, exports have the benefit of making imports possible. How does that benefit disappear, when it is claimed that exports are nothing but disadvantageous, void of benefits, a cost and nothing but a cost?
You write:
But being able to export is clearly particularly important for a nation that cannot feed itself or run electricity systems with the resources it has at its disposal [sic] with trade.
You are avoiding the term "benefit", but still a benefit it is. Then you write:
Which means that the cost [that export is] is best considered as an investment in generating benefits, which in this case, might be an increased capacity to purchase imports.
The ability to afford the cost of importing "some real things" is a benefit derived from export. If export would not bring forth this benefit, I would not be able to benefit from import. Restricting export to its cost side is as inadmissible as claiming that a salary is a cost for its receiver, say, for all of it is spent. Well I could not spend anything unless my salalry had the benefit of being worth enough to afford the cost that sellers erect like a wall between my desires and the things I would like to acquire. This cost (of purchasing imports) is not generated by export, but by the importers legitimate inclination not to give away things for free, and that cost is met by the exporter's ability (i. e. the great benefit of export) to offer something sufficiently valuable to entice the importer to make a purchase. So export can be looked at from the point of view of benefits (e. g. it gives me purchasing power) as well as costs (I have to give up certain things to enjoy the benefits of export).
To claim that within the conceptual framework of costs and benefits, only the concept of cost applies to export is not true. It (export as cost) applies in the form of special cases.
It is not clear to me what one hopes to gain by claiming that a proposition is more general than it actually is.
Also, the advantages and disadvantages (costs and benefits) of exporting and importing can not be exhaustively accounted for by concentrating exclusively on the question whether the domestic availability and the domestic use of domestic resources are increased (supposedly categorically good) or reduced (supposedly categorically bad). Why should one use domestic resources domestically, when they are more productively and profitably applied by producing and selling export goods?
To the extent that trade involves international imbalances as well as winners and losers, this still does not justify the conceptual truncation whereby exports are said to be a cost and only a cost, and not amenable to being (perceived as) anything else, and imports are said to be a benefit and only a benefit, and not amenable to being (perceived as) anything else.
I think, this is the core reason why many people do not go along with "export = cost, import = benefit."
A claim is made that the proposition is virtually self-evident, easy to state and understand, when it is not, for it purports to express a generally applicable statement, when in fact it can be challenged by valid counter examples.
The claim is confidently introduced as simple and clear and of the most general nature, but further discussion quickly reveals that sophisticated complementary arguments are required to support it.
It seems to me that a rephrasing is required that avoids the above shortcomings.
I write this as someone who is willing to try very hard to understand MMT, because I have amply experienced how exceptionally valuable this way of looking at the economy is.
Continued from here.
I received this reply to my comment.
My response is here:
Thank you for your reply.
I fail to see how a regime of floating exchange rates invalidates what these gentlemen have to say about the benefits of engaging in exporting:
Adam Smith, The Wealth of Nations, Chap I, Commercial System, p. 181
While Adam Smith emphasises trade and thus exporting as "a vent for surplus production and as a means of widening the market thereby improving the division of labour and the level of productivity" (Thirlwall), the latter author continues to write in his "Growth and Development" (1990, p. 430),
And he adds on p. 431 with respect to the most successful among the developing and (not only recently) industrialised countries
If this is true, and I have no doubt it is, how can one claim that exporting is an impoverishing activity and nothing but an impoverishing activity (Neil Wilson above), a cost and nothing but a cost, not eligible to be ascribed any benefit(s) ?
Are you saying all of these benefits do not exist? Alternatively, are you saying that if these benefits exist their effects are fully annihilated, made to disappear, leaving no traces of their positive side by the fact that an exporter is "giving up some real things" of domestic origin? Are you arguing in favour of total autarky? No, you are not, because you posit that imports are a benefit (and nothing but a benefit). But as you acknowledge yourself, exports have the benefit of making imports possible. How does that benefit disappear, when it is claimed that exports are nothing but disadvantageous, void of benefits, a cost and nothing but a cost?
You write:
You are avoiding the term "benefit", but still a benefit it is. Then you write:
The ability to afford the cost of importing "some real things" is a benefit derived from export. If export would not bring forth this benefit, I would not be able to benefit from import. Restricting export to its cost side is as inadmissible as claiming that a salary is a cost for its receiver, say, for all of it is spent. Well I could not spend anything unless my salalry had the benefit of being worth enough to afford the cost that sellers erect like a wall between my desires and the things I would like to acquire. This cost (of purchasing imports) is not generated by export, but by the importers legitimate inclination not to give away things for free, and that cost is met by the exporter's ability (i. e. the great benefit of export) to offer something sufficiently valuable to entice the importer to make a purchase. So export can be looked at from the point of view of benefits (e. g. it gives me purchasing power) as well as costs (I have to give up certain things to enjoy the benefits of export).
To claim that within the conceptual framework of costs and benefits, only the concept of cost applies to export is not true. It (export as cost) applies in the form of special cases.
It is not clear to me what one hopes to gain by claiming that a proposition is more general than it actually is.
Also, the advantages and disadvantages (costs and benefits) of exporting and importing can not be exhaustively accounted for by concentrating exclusively on the question whether the domestic availability and the domestic use of domestic resources are increased (supposedly categorically good) or reduced (supposedly categorically bad). Why should one use domestic resources domestically, when they are more productively and profitably applied by producing and selling export goods?
To the extent that trade involves international imbalances as well as winners and losers, this still does not justify the conceptual truncation whereby exports are said to be a cost and only a cost, and not amenable to being (perceived as) anything else, and imports are said to be a benefit and only a benefit, and not amenable to being (perceived as) anything else.
I think, this is the core reason why many people do not go along with "export = cost, import = benefit."
A claim is made that the proposition is virtually self-evident, easy to state and understand, when it is not, for it purports to express a generally applicable statement, when in fact it can be challenged by valid counter examples.
The claim is confidently introduced as simple and clear and of the most general nature, but further discussion quickly reveals that sophisticated complementary arguments are required to support it.
It seems to me that a rephrasing is required that avoids the above shortcomings.
I write this as someone who is willing to try very hard to understand MMT, because I have amply experienced how exceptionally valuable this way of looking at the economy is.